<p>I have been reading thorough gobs of gobbledy-gook on savings plans, and cannot see the advantage of one over the other, between the SEP-IRA and the Single-K 401. It seems that the 401-K requires planning ahead, but allows a larger dollar amount to be put away. While the SEP is good for those procrastinators who did not plan, missed deadlines etc.</p>
<p>It seems that the 401-K requires automatic contributions into the plan to be deducted from the W-2 on an ongoing basis. If it was not done for Jan to June, for example, the employee cannot contribute for those months later on. But the employer can still kick in 25% of the employee’s salary.</p>
<p>The SEP-IRA otoh allows the employee to pay into the SEP at the very end of the year, but upto a maximum of $4000. But the employee can also have their own individual IRA? Ugh.(This is where it gets fuzzy.)</p>
<p>Self employed here. We had the SEP a few years back and moved to the 401K on the advice of our cpa. Reason was that the contributions were pre payroll taxes and a much larger dollar amount could be put away. The max for the 401K is dependent on your age, but generally in the 10K range as opposed to the SEP which is 4K.<br>
Yes the individual can have their own IRA. We have employees who have IRAs and the 401K.<br>
Lucky us, we have regular IRA from years ago, SEP IRAs from a few years back and now 401K. The annual fees add up which stinks but there is no great solution to that and the 401K is a great incentive for us and for employees.<br>
I don’t know about 25% of the employees salary. We do a match of up to 3% of annual salary. Some employees do it, some don’t. We don’t put anything in if the employee doesn’t put anything in. If you go with the 401K you want to have someone set it up for you and you have to decide on the rules: how long before anyone is eligible, how much will you match, etc. ahead of time. The rules have to be the same for everyone, including yourself.
Again: I am not a cpa or lawyer so your mileage might vary. Talk to a pro.</p>
<p>I think you might have a SEP IRA confused with a traditional IRA - the maximum limit is $44,000 - not $4000:</p>
<p>*IRS Publication 560:
SEP :: Maximum Contribution: Smaller of $44,000 or 25% of participant’s compensation. :: Maximum Deduction: 25% of all participants’ compensation. *</p>
<p>Our income is such that we ignore the SEP, and 401K in favor for Roth IRA and Roth 401k. We expect that our future taxable investments, small pension, and Social Security will put us into more taxes. We want as much nontaxable income in the future. </p>
<p>Here is the LED light that should come on for everyone. We know that the deficit spending either must be paid either by inflation and/or future taxation. Try to invest in inflation neutral things and avoid future tax liabilities. </p>
<p>It may be better to absorb a small tax payment today in exchange for a smaller tax payment tomorrow.</p>
<p>They are all about the same really, except for contribution limits and of course fees. Whatch your fees on some of these deals. Look into a simple, simple roths. etc… be aware of FEES. Just in case you missed it FEES…</p>
<p>There are several methods out there that allow you to put dollars away at the low cost. I looked at the individual 401(k) but the fees turned me off. I wouldn’t reccommend them to a client (yes, I sell em) because of the expenses, but that’s just me. Each of you will have a different need and realistically a different savings level. Compare management costs of each concept, but it’s your money… complexity costs… if you want a first class retirement make sure your investments are flying coach rates. ya still get there… again just me another advisor might feel differently.</p>
<p>I have a SEP,and with new regulations (correct me if I am wrong, Opie) I can put 25% of my income in the SEP (use to be that we had to have 2 different accounts,now we have merged them into one). Its through a USAA account so the FEES (if any) are low. Did I do good, Opie?</p>
<p>I could be wrong, calmom, but from various sites I have read, the SEP allows the employer to contribute 25% of the employee’s income, or $44,000 into the SEP, whichever is less. The employee however, can only contribute the usual IRA amount of $4000. It may be a type of “profit-sharing” plan.</p>
<p>chocoholic – you titled this thread, “tax questions for the self-employed” – so I’m not sure what you are asking – if you are self-employed then you can contribute the maximum to your own account; if you are an employer setting up plans for your employees then I guess that would be more complicated.</p>
<p>I guess I was too vague in my OP.
Its a business owned by DH and myself, and the only salaried employees are DH and myself. So yes, we would like to maximize our contributions into the savings plan.</p>